In response to the threats of the US Secretary of Agriculture to hit Russian fertilizers, Brazil strongly opposed. It is impossible to impose an embargo on fertilizers from Russia, because this will not only increase global inflation, but also threaten food shortages, Brazilians warn. Both Europe and the USA themselves are heavily dependent on Russian fertilizers. Why is Washington not afraid of an increase in the number of hungry people?
Russian fertilizers should be excluded from the list of goods that have fallen under sanctions due to the Russian military operation in Ukraine, Brazilian Agriculture Minister Teresa Cristina da Costa Diaz said. The ban on the supply of fertilizers from Russia increases inflation and threatens food security, especially in vulnerable countries. More than 800 million people are already hungry all over the world, she added.
Brazil is the largest importer of fertilizers. It buys 85% of fertilizers abroad. Russia and Belarus (which is also under economic sanctions) account for a combined 28%. If fertilizers are in short supply, then Brazil's status as the largest exporter of agricultural products, ranging from soybeans to coffee and sugar, will be in question. "We can create a big problem by exacerbating global hunger," warns the Brazilian Minister of Agriculture.
"The demand for fertilizers on the world market is growing rapidly, in the 2021-2022 agricultural year their total demand exceeded 195.6 million tons. Fertilizers have become an important factor in the food well-being of most countries of the world. Their shortage is always accompanied not only by an increase in food prices, but also by an increase in the number of hungry people in most regions of the world," says Ibrahim Ramazanov, Professor of the Basic Department of Trade Policy at the Russian University of Economics. Plekhanov.
However, the United States is ready to turn a blind eye to hunger for the sake of hitting Russia. "Perhaps sacrifices are needed to cope with the unjustified war that Russia has decided to start," US Secretary of Agriculture Tom Vilsack said during a virtual event organized by the UN Food and Agriculture Organization this week. It was in response to this threat that Brazil issued an appeal not to impose sanctions against Russian fertilizers.
The USA, in fact, is also a major importer of fertilizers, including from Russia. While Brazil imports about 0.9 million tons of Russian fertilizers, the United States imports 0.5 million tons.
Why is the US ready to strike at Russian fertilizers, despite the growth of hungry people around the world? It is easier for the USA to do this than for Europe, since they are less dependent on Russian fertilizers.
"About one third of all exports of Russian fertilizers account for the countries of Europe and the United States. Europe is quite dependent on the export of Russian fertilizers, as their share is about 25%, in the USA it is lower, about 11-12%",
- analysts of Freedom Finance note.
Only Estonia and Finland, which are members of the European Union, import 1 million tons of Russian fertilizers, that is twice as much as the United States. And they are also bought by other European countries, including Poland, Romania and many others.
Europe has already lost part of Belarusian fertilizers, European farmers are unlikely to survive the rejection of Russian ones. By the way, last year the EU backed down on Belarusian fertilizers: it withdrew half of Belarusian potash from sanctions.
The crisis in the global fertilizer market began back in 2020 due to a pandemic that shut down factories and disrupted logistics. In 2021, the crisis worsened due to sanctions against Belarus, which was also a significant exporter of goods to Europe.
"Due to the sanctions pressure on the main exporter of fertilizers – Russia – in the world, the shortage of fertilizers and the risk of not receiving the harvest of the main types of food raw materials is increasing," Ramazanov says. He explains that the lack of fertilizers is due to the fact that a number of countries are already abandoning Russian fertilizers, plus there is a violation of sea transportation due to sanctions pressure. In particular, three large international container companies refuse to ship Russian goods. "There is almost no shortage of alternative sources of coverage," Ramazanov says.
The crisis and the expectation of its aggravation caused the prices of mineral fertilizers to skyrocket. For example, one of the most popular nitrogen fertilizers in agriculture – carbamide - costs more than $ 1,000 per ton in Europe. The same high prices are already in Egypt, and in the Persian Gulf countries, and in Brazil, and in Mexico.
The second reason why the United States is ready to impose sanctions against Russian fertilizers is that they will have money to buy fertilizers from other suppliers. After all, when one significant player leaves the market, countries begin a price struggle for the remaining scarce goods. And the winner is the one who can pay more for fertilizers. Of course, the United States will win in this price race, because printing dollars is not a problem for them. Brazil and other developing countries will be in a weaker position. Sanctions will be imposed by the United States, but the number of hungry people will not increase in America.
In addition, there is Canada nearby, which supplies the USA with potash fertilizers almost completely. About a third of the nitrogen used in the US comes from abroad, mainly from the Middle East and Russia. And the country receives phosphorus fertilizers from Saudi Arabia and Australia, Bloomberg reports. In the USA, soybeans, corn, peanuts, sunflowers and potatoes are grown in large volumes.
The EU will not get off as easily as the US. Europe, of course, will also find funds for more expensive fertilizers. But will there be enough supplies from the Middle East for it? Not to mention the fact that Europeans are already forced to pay tens of times more for energy resources, which causes an explosion of inflation. The inhabitants of Europe are unlikely to like an even bigger surge in food inflation. Own fertilizer plants in Europe are shutting down. First, they were hit by incredible gas prices, then restrictions on the purchase of Russian raw materials (ammonia and potassium chloride).
"Most of the products, of course, can be grown without fertilizers, but then the harvest volumes will decrease significantly, and for some types of food by two or three times. European farmers may suffer serious losses, because energy costs will increase this year anyway.
In Europe, about 60% of the acreage is sown on cereals - wheat, corn and barley, the remaining areas grow corn, vegetables, rice, sugar beet and grapes. This means that we can expect the biggest price increase from them," Freedom Finance analysts note.
Of course, Russia will also suffer from sanctions, as it will lose export revenues from the sale of fertilizers. In 2021, Russia earned $ 3.3 billion on potash fertilizers alone, exporting almost 12 million tons, increasing sales by almost a quarter, it follows from the materials of the Federal Customs Service (FCS). Almost $ 4.5 billion more was received from the export of nitrogen fertilizers, the export of which amounted to 14.5 million tons. Plus 4.7 billion dollars - on the export of mixed fertilizers (for 11.2 million tons).
The EU market is very important for Russian companies. For example, for PhosAgro, it was the second market after Russia in terms of supplies of phosphorus-containing fertilizers. "The EU accounted for 39% of the company's export revenue, or 26% of the group's total revenue by the end of 2020. Moreover, the company provided 18% of EU fertilizer imports. Due to the possible effects of sanctions, the company may probably need to reorient export supplies, but given their significant scale, this will be problematic. Sales can be redirected primarily to the Asia-Pacific markets," notes Dmitry Puchkarev, an expert at BCS World of Investments.
However, unlike Europe and other countries that will not receive fertilizers due to Western sanctions, Russian farmers will receive all the fertilizers they need – and perhaps even at a more attractive price.
Olga Samofalova
